ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For
the fiscal year ended December 31, 2017

OR

[ ]

TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For
the transition period from to

Commission
File No. 1-13906

Ballantyne
Strong, Inc.

(Exact
Name of Registrant as Specified in Its Charter)

Delaware

47-0587703

(State
or other jurisdiction of

incorporation
or organization)

(I.R.S.
Employer

Identification
No.)

11422
Miracle Hills Drive, Suite 300

Omaha,
Nebraska

68154

(Address
of principal executive offices)

(Zip
Code)

Registrant’s
telephone number, including area code: (402) 453-4444

Securities
registered pursuant to Section 12(b) of the Act:

Title
of each class

Name
of exchange on which registered

Common
Stock, $0.01 par value

NYSE
American

Securities
registered pursuant to Section 12(g) of the Act: None

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ]
No [X]

Indicate
by check mark if the registrant is not required to file reports filed pursuant to Section 13 or Section 15(d) of the Act. Yes
[ ] No [X]

Indicate
by check mark whether registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate
by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large
accelerated filer [ ]

Accelerated
filer [X]

Non-accelerated
filer [ ]

(Do
not check if a smaller

reporting
company)

Smaller
reporting company [ ]

Emerging
growth company [ ]

If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act [ ]

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes [ ] No [X]

The
aggregate market value of the Company’s voting common stock held by non-affiliates, based upon the closing price of the
stock on the NYSE American on June 30, 2017 was $63,729,857. The Company does not have any non-voting common equity. As of March
2, 2018, 14,422,090 shares of common stock of Ballantyne Strong, Inc., were outstanding.

DOCUMENTS
INCORPORATED BY REFERENCE

Portions
of the Company’s Proxy Statement for its 2018 Annual Meeting of Stockholders are incorporated by reference in Part III,
Items 10, 11, 12, 13 and 14.

This
Annual Report on Form 10-K contains not only historical information, but also forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In
addition, forward-looking statements may be made in press releases, orally, at conferences, on the Company’s web site, or
otherwise, by or on behalf of the Company. Statements that are not historical are forward-looking and reflect expectations for
future Company performance. These statements often use words such as “anticipates,” “targets,” “expects,”
“hopes,” “estimates,” “intends,” “plans,” “goal,” “believes,”
“continue” and other similar expressions or future or conditional verbs such as “will,” “may,”
“might,” “should,” “would” and “could.” These statements involve certain known
and unknown risks, uncertainties and assumptions that are difficult to predict and are often beyond the Company’s control.
For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.

You
should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as
well as the risks and uncertainties more fully discussed elsewhere in this report, including under Item 1A. Risk Factors of this
Annual Report on Form 10-K and in any of the Company’s subsequent Securities and Exchange Commission filings for further
information about factors that could affect such forward-looking statements: the Company’s ability to expand its revenue
streams, potential interruptions of supplier relationships or higher prices charged by suppliers, the Company’s ability
to successfully compete and introduce enhancements and new features that achieve market acceptance and that keep pace with technological
developments, the Company’s ability to successfully execute its capital allocation strategy, the Company’s ability
to retain or replace its significant customers, the impact of a challenging global economic environment or a downturn in the markets,
economic and political risks of selling products in foreign countries, risks of non-compliance with U.S. and foreign laws and
regulations, cybersecurity risks and risks of damage and interruptions of information technology systems, the Company’s
ability to retain key members of management and successfully integrate new executives, the Company’s ability to complete
acquisitions, strategic investments, entry into new lines of business, divestitures, mergers or other transactions on acceptable
terms or at all, the Company’s ability to assert its intellectual property rights, the impact of natural disasters and other
catastrophic events, the adequacy of insurance and the impact of having a controlling stockholder.

Given
the risks and uncertainties, readers should not place undue reliance on any forward-looking statements and should recognize that
the statements are predictions of future results which may not occur as anticipated. Actual results could differ materially from
those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described
herein, as well as others not now anticipated. New risk factors emerge from time to time and it is not possible for management
to predict all such risk factors, nor can it assess the impact of all such factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially from those contained in the forward-looking statements.
Except as required by law, the Company assumes no obligation to update forward-looking statements to reflect actual results or
changes in factors or assumptions affecting such forward-looking statements.

Ballantyne
is a Delaware corporation which was founded in 1932 and became a designer and manufacturer of film projectors. For more than 85
years, we have expanded our product lines and services to meet the needs of the ever-changing and technologically-advancing theater
exhibition industry. Most recently, we entered the digital media sector through an acquisition which enables us to serve the advertising,
education and communication needs of retail, corporate, and government markets. Ballantyne went public in 1995; our shares are
traded on the NYSE American market under the symbol “BTN.”

We
conduct our operations through two primary business segments: Cinema and Digital Media. During the fourth quarter of 2017, we
decided to reorganize our segments to move the operations of Strong Technical Services, Inc. from the Digital Media segment to
the Cinema segment. All prior periods have been recast in our segment reporting to reflect the current segment organization.

Strategy

Our
Board of Directors has implemented a strategy focused on making optimal capital allocation decisions across all of the Company’s
businesses and investments. The Board intends to consider and make investments in the Company’s existing Cinema and Digital
Media businesses when attractive opportunities arise. The Board also intends to consider and make investments in other industries
that are expected to produce higher returns on invested capital. This may involve investments in public companies or the complete
acquisitions of other businesses, which may be within or outside of the Company’s existing markets. We intend our investments
in public companies to be made in circumstances where we believe that we will be able to exercise some degree of influence or
control.

The
Company now holds investments in several public companies. These investments include RELM Wireless Corporation (NYSE American:
RWC), a manufacturer of two-way wireless radio communications equipment, 1347 Property Insurance Holdings, Inc. (Nasdaq: PIH),
a provider of property and casualty insurance in the States of Louisiana, Texas and Florida, and Itasca Capital Ltd. (TSX Venture:
ICL), a holding company that holds a significant position in Limbach Holdings, Inc. (Nasdaq: LMB), a leading commercial provider
of HVAC construction and related services. As of December 31, 2017, the Company holds approximately 8.3% of the outstanding stock
of RELM Wireless Corporation, approximately 17.4% of the outstanding stock of 1347 Property Insurance Holdings, Inc., and approximately
32.3% of the outstanding stock of Itasca Capital Ltd.

Fundamental
Global Investors, LLC, the funds that it manages, its other affiliates, and the directors, officers and employees of
the Company and their affiliates together currently hold approximately 41.2% of the Company’s outstanding stock.
In some cases, funds managed by Fundamental Global Investors, LLC may acquire positions in the same public companies as the
Company. Fundamental Global Investors’ funds currently hold positions in both RELM Wireless Corporation and 1347
Property Insurance Holdings, Inc.

In
addition to the Company’s operating businesses and investments in public companies, the Board expects to consider investments
and transactions in other areas that it believes are likely to increase returns to shareholders, such as continued stock buybacks
and monetizing physical or other assets held by the company.

The
Board expects that over time the Company will be further transformed into a holding company with ownership of and investments
in diverse businesses.

Operating
Segments

Cinema

Overview

We
provide a full range of products and services to the theater exhibition industry from the design and installation of new theater
exhibition systems and related equipment to maintenance and monitoring of existing systems. The systems include a wide spectrum
of premier audio-visual products and accessories such as: digital projectors, state of the art projection screens, servers and
library management systems, menu boards, flat panel displays, and sound systems.

4

We
market and sell directly to theater exhibitors, as well as through certain domestic and international Value Added Resellers (“VAR”).
Over the course of our 85-year history, we have developed ongoing customer relationships with a large portion of the theater owners
in the United States and a number of the major theater owners internationally. Our sales and marketing staff principally develop
business by maintaining regular personal contact with our established customer relationships, including conducting site visits.
In our sales and marketing efforts, we emphasize our value proposition of providing the broadest range of products and services
delivered by one of the industry’s largest technical service teams, which provides a significant resource to our clients
in managing the complexities of digital technology in the cinema exhibition industry. Our sales and marketing professionals have
extensive experience with the Company’s product lines and have long-term relationships throughout the industry.

Products

Screens
— We manufacture multiple standard and large format 2D and 3D screens for cinema and special venue applications through
our ISO-certified manufacturing facility in Canada. There are certain digital 3D applications, such as the technology by RealD,
that require unique “silver” screens that we manufacture. In addition, we purchased Peintures Elite, Inc. in 2013,
the manufacturer of coatings that have been exclusive to our Company in the manufacture of our screens. This relatively small
acquisition positioned us to retain the exclusive rights to this coating and to continue producing our unique screens. We are
constantly innovating to set new standards within the screen industry, and in 2013 we developed the new Premium HGA screen that
diffuses light more evenly over the entire screen surface, thereby reducing the formation of so-called “hot spots.”

Screen
Support Systems — Our custom screen support structures are designed and built with quality and safety as a priority.
They are easy to assemble, require no scaffolding and each one includes detailed and easy to understand installation instructions.
Our mechanical design and engineering team supervises every step of the process, from design to manufacturing, at one location.

Projectors
— Through distribution agreements with NEC and Barco, we distribute DLP Cinema projectors in the Americas. Both manufacturers
of the projectors use the DLP cinema technology from Texas Instruments. NEC offers DLP Cinema projectors ranging from their NC900
projector for screens up to 31 feet wide to the NC3240S, which is a 4K projector designed for screens up to 105 feet wide. Barco
offers DLP Cinema projectors ranging from their DP2K-10SX projector for screens up to 33 wide feet to the DP4K-32B cinema projector,
which is an ultra-bright enhanced 4K cinema projector for screens up to 105 feet wide.

Servers
— Through a formal distribution agreement with GDC Technology (USA), LLC, we distribute GDC’s line of digital
cinema servers in North and South America. We also distribute their servers in certain other areas of the world under less formal
arrangements. In addition, we distribute servers for other server manufacturers, including those manufactured by Dolby. Digital
servers and the related integrated media block are used by our customers for the storage and delivery of digital movie content.

Audio
Systems — We distribute a range of state of the art digital audio systems, including surround and 3D sound technologies
from the following manufacturers: Dolby, Barco, USL, JBL and QSC. Our technicians are certified by each manufacturer to install,
service and maintain these and other audio systems.

Additional
Projection Products — We also distribute certain third-party accessories, which when coupled with the cinema projector,
server and integrated media block, can fully outfit and automate a projection booth. The significant accessories include, but
are not limited to, library management systems, automation products, pedestals, 3D accessories, lenses and lamps.

Technical
Services

Network
Operations Center — Our Network Operations Centers (“NOC”), staffed by software engineers and systems techs,
operate 24/7/365 and provide technical support to our customers to meet Service Level Agreements (“SLA”). From each
location in Alpharetta, GA and Omaha, NE, we are able to monitor our customers’ networked equipment remotely, often providing
proactive solutions to systems issues before they cause system failures. Our remote services include systems monitoring and maintenance,
software upgrades and system repairs. By utilizing NOC personnel to solve customer issues whenever possible, we eliminate travel
time and expenses normally incurred by sending a technician onsite for repairs. Many issues that do not involve parts replacement
or physical contact with the hardware can be handled remotely using our remote assistance technologies.

5

Onsite
Service and Maintenance — We provide digital cinema equipment installations and after-sale maintenance services. Our
onsite technicians work closely with our NOC staff to resolve systems issues that cannot be fixed remotely; they are certified
to install and service a wide array of digital and audio equipment from a number of manufacturers. We offer cabling, wiring, installation
and maintenance services for digital equipment on ad hoc, as-needed basis. We also offer long-term contractual service packages
for maintenance and repairs to a wide range of installed digital equipment for customers. These long-term contractual service
packages provide our Company with recurring revenue.

Markets

We
sell our screen systems worldwide, with our primary markets being North America and Asia.

Our
non-exclusive distribution agreements with NEC and Barco allow us to market digital projectors in North and South America, including
the Caribbean. In China we have distribution rights to sell Barco. We do not have any territorial restrictions for any of our
other products and services.

We
provide Cinema technical services in the United States. We market and sell our services directly to theater owners and through
dealers or VAR networks.

Digital
Projection Equipment — The markets for our products in the Cinema segment have been highly competitive. The primary
competitive factors are price, product quality, features and customer support. Competition in the digital cinema equipment market
includes one other licensed original equipment manufacturer (OEM) of the Texas Instruments’ DLP cinema technology besides
our partners NEC and Barco: Christie Digital Systems. We also compete with Sony, which uses its own 4K digital cinema technology.

Technical
Services – The competition in the cinema service industry for installation, after-sale maintenance, and NOC services
is primarily driven by the two largest cinema service companies: the Company and Christie Digital, although there are other smaller
scale providers.

Revenues

The
following table summarizes net revenues for the Cinema segment by similar classes of products and services for each of the last
three fiscal years (in thousands):

Years
ended December 31,

2017

2016

2015

Screen
systems sales

$

18,915

$

20,207

$

18,833

Digital
equipment sales

12,996

17,734

25,119

Field
maintenance and monitoring services

12,834

12,579

11,780

Installation
services

1,155

460

1,550

Other

3,037

3,795

3,557

Total
segment revenue

$

48,937

$

54,775

$

60,839

6

Digital
Media

Overview

The
Company delivers digital signage solutions and services across two primary markets: digital out-of-home and enterprise video.
In 2018, we will also begin providing advertising services as described below. These markets are served through the capabilities
that we developed from the acquisition of Convergent in 2013. While there is digital signage equipment sold within this segment,
the primary focus of this segment is providing solutions and services to our customers.

Solutions

Digital
Signage – Our industry-first Digital Signage as a Service gives customers an end-to-end solution that includes hardware,
software, content distribution, management, network monitoring and field services, all for a single monthly fee. Our “as-a-service”
model lowers up-front customer capital costs, allows customers to scale more easily and allows them to ‘turn on’ or
‘turn-off’ features as needed. It also eliminates the risk of investing in quickly changing technologies, removes
complexity and lessens resource burdens typically associated with traditional digital signage systems. We primarily market our
solutions to large businesses in North America that do not have the resources, expertise or desire to create, manage and maintain
their digital signage system internally. Customers typically require deployment across many locations and utilize digital signage
to increase product sales, improve the consumer experience, enhance their brand or engage their audience.

Enterprise
Video – We provide video communication services and solutions, including design, integration, monitoring, maintenance
and installation for the government and corporate markets. These solutions provide enterprises with the infrastructure necessary
to communicate, collaborate, train and educate employees.

Advertising
– During the first quarter of 2018, we signed an agreement to provide advertising services on over 3,500 New York City
taxicabs. The advertising will be on a combination of vinyl printed signs and digital signs. We have leased 300 digital signs,
which we expect to install during the first half of 2018. The remainder of the taxicabs will initially feature print advertising.
We expect to convert more taxicabs to digital signs over time.

Products
and Services

Digital
Signage as a Service (DSaaS) Platform – Our platform leverages internally developed and third-party software to automate
the customer’s digital signage workflow, including from content creation, approval, storage and management, network deployment,
monitoring, case management and incident resolution. Since it is cloud-based, it provides inherent scalability to enable customers
to expand or contract their network. The DSaaS platform supports a wide range of applications – all of which are managed
through a single user interface. New features and functionality are frequently added, both through the efforts of our in-house
software development team and integration with an ever-growing ecosystem of third-party applications.

Content
Creation – We provide creative services to digital signage clients that include media strategy, content design and production.
Our creative services team develops custom content to support the branding and marketing initiatives of each client.

Content
Management and Distribution – Content management is provided to ensure accurate playback at the right place and at the
right time based on a number of factors such as geography, site characteristics, location within a site or consumer demographics.
We utilize our DSaaS platform for the management and distribution of content. Content is prepared, scheduled and centrally distributed
from our cloud infrastructure.

Service
and Maintenance — We provide digital signage installations and after-sale maintenance services. Our onsite technicians
work closely with our NOC staff to resolve systems issues that cannot be fixed remotely; they are certified to install and service
a wide array of digital and audio equipment from a number of manufacturers. We offer cabling, wiring, installation and maintenance
services for digital menu boards and other digital equipment on ad hoc, as-needed basis. We also offer long-term contractual service
packages for maintenance and repairs to digital signage equipment. These long-term contractual service packages provide our Company
with recurring revenue.

7

Network
Connectivity – We offer nationwide internet connectivity to fulfill content distribution and network management functions.
We utilize third party providers for traditional terrestrial connectivity, as well as wireless service across North America.

Measurement
and Analytics – We offer the tools and resources to measure the impact of digital signage solutions. We develop measurement
criteria, establish benchmarks and identify control mechanisms to test the effectiveness of such solutions during proof of concept
and full rollout scenarios.

Markets

Digital
Out-of-Home – The Digital Out-of-Home (“DOOH”) advertising market is a subset of the overall OOH advertising
market that includes in-store digital displays and interactive promotion kiosks. DOOH marketing campaigns consist of a network
of digital displays that are centrally managed and target both mobile and captive customers outside the home. We are primarily
focused on pursuing DOOH communication opportunities within the retail, banking, entertainment and corporate markets.

During
the first quarter of 2018, we established a new subsidiary, Strong Digital Media, LLC, to provide advertising services within
the Digital Media segment as described above.

Sale
of Business

On
May 17, 2017, the Company sold the operational assets of Strong Westrex, Inc. (“SWI”), a wholly-owned subsidiary of
the Company, for total proceeds of $60 thousand. The Company recorded an insignificant gain on the sale of SWI.

Financial
Instruments and Credit Risk Concentrations

The
Company’s top ten customers accounted for approximately 53% of 2017 consolidated net revenues. Trade accounts receivable
from these customers represented approximately 39% of net consolidated receivables at December 31, 2017. Sales to the following
customers in fiscal 2017 exceeded 10% of our net revenues from continuing operations (dollars in thousands):

Revenue

%

Regal
Cinemas

$

7,978

10.9

%

Wells
Fargo & Company

7,797

10.7

%

American
Multi-Cinema (AMC)

7,593

10.4

%

Manufacturing

We
manufacture cinema screens through Strong/MDI, our screen subsidiary in Joliette, Quebec, Canada. These manufacturing operations
consist of an 83,000 square-foot facility for the manufacture of cinema screen systems. These facilities include expanded PVC
welding operations with programmable automations, as well as two 90-foot high screen coating towers with state of the art precision
coating application software and painting systems. This world class ISO certified operation has the capability of manufacturing
multiple standard screens simultaneously to large format 2D and 3D screens for cinema and special venue applications.

Quality
Control

We
believe that our quality control procedures and the quality standards for the products that we manufacture, distribute or service
have contributed significantly to our reputation for high performance and reliability. The inspection of incoming materials and
components as well as the testing of all of our products during various stages of the sales and service cycle are key elements
of this program.

Trademarks

We
own or otherwise have rights to various trademarks and trade names used in conjunction with the sale of our products. We believe
our success will not be dependent upon trademark protection, but rather upon our scientific and engineering capabilities and research
and production techniques. We consider the following trademarks to be of value to our business: Strong® and Convergent™.

Employees

We
employed 335 persons at December 31, 2017. Of these employees, 162 positions were considered manufacturing or operational, 90
were service related and 83 were considered sales and administrative. We are not a party to any collective bargaining agreement.

9

Seasonality

Generally,
our business exhibits a minimal level of seasonality.

Regulation

We
are subject to complex laws, rules and regulations affecting our domestic and international operations relating to, for example,
environmental, safety and health requirements; exports and imports; bribery and corruption; tax; data privacy; labor and employment;
competition; and intellectual property ownership and infringement. Compliance with these laws, rules and regulations may be onerous
and expensive, and if we fail to comply or if we become subject to enforcement activity, our ability to manufacture our products
and operate our business could be restricted and we could be subject to fines, penalties or other legal liability. Furthermore,
should these laws, rules and regulations be amended or expanded, or new ones enacted, we could incur materially greater compliance
costs or restrictions on our ability to manufacture our products and operate our business.

Some
of these complex laws, rules and regulations – for example, those related to environmental, safety and health requirements
– may particularly affect us in the jurisdictions in which we manufacture products, especially if such laws and regulations:
require the use of abatement equipment beyond what we currently employ; require the addition or elimination of a raw material
or process to or from our current manufacturing processes; or impose costs, fees or reporting requirements on the direct or indirect
use of energy, or of materials or gases used or emitted into the environment, in connection with the manufacture of our products.
There can be no assurance that in all instances a substitute for a prohibited raw material or process would be available, or be
available at reasonable cost.

Executive
Officers of the Company

D.
Kyle Cerminara, age 40, has been Executive Chairman since September of 2015 and Chief Executive Officer since November of 2015.
Mr. Cerminara has served on the Board of Directors since February of 2015.

Ray
F. Boegner, age 68, has been President of the Cinema business since November of 2015. Mr. Boegner joined us in 1985 and has acted
in various sales roles for our Company, including as Senior Vice President from 1997 to 2015.

Stephen
L. Schilling, age 53, has been President of the Digital Media business since November of 2015.

Lance
V. Schulz, age 50, has been Senior Vice President, Chief Financial Officer and Treasurer since March of 2017.

Information
Available on Ballantyne Website

We
make available free of charge on our website (www.ballantynestrong.com), through a link to the Securities and Exchange Commission
(“SEC”) website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934,
as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. However,
information posted on our website is not part of the Form 10-K. The Board of Directors has adopted the following governance documents,
which are also posted on our website:

●

Code
of Ethics

●

Audit
Committee Charter

●

Nominating
and Corporate Governance Committee Charter

●

Compensation
Committee Charter

10

These
corporate governance documents are also available in print to any stockholder upon request by writing to:

The
financial information about segments and geographic areas is included in Note 17 of our consolidated financial statements in this
report.

Item
1A. Risk Factors

Our
business and financial performance are subject to various risks and uncertainties, some of which are beyond our control. We discuss
in this section some of the risk factors that, if they actually occurred, could materially and adversely affect our business,
financial condition and results of operations. In that event, the trading price of our common stock could decline and you may
lose part or all of your investment. You should consider these risk factors in connection with evaluating the forward-looking
statements contained in this Annual Report on Form 10-K because these factors could cause our actual results and financial condition
to differ materially from those projected in forward-looking statements. We undertake no obligation to revise or update any forward-looking
statements contained herein to reflect subsequent events or circumstances or the occurrence of unanticipated events.

If
we are unable to expand our revenue streams to compensate for the lower demand for our digital cinema products and installation
services, our business, financial condition and results of operations could be materially adversely affected.

A
significant portion of our revenue in recent years has been generated from the theater exhibition industry’s need for digital
cinema equipment and services to support the industry’s transformation from film to digital equipment. This transition required
us to commit substantial resources to the process of retrofitting existing theater complexes by removing the film equipment and
replacing it with digital equipment, and we experienced significant financial gains from this work. With the completion of this
digital conversion by North America theater exhibitors, we are no longer able to rely on that income as a major source of our
earnings. If we are unable to expand our revenue streams with other products and services, our future growth would be significantly
curtailed.

A
portion of our revenues are dependent on the distribution of products supplied by various key suppliers. If we fail to maintain
satisfactory relationships with our suppliers, or if our suppliers experience significant financial difficulties, we could experience
difficulty in obtaining needed goods and services. Some suppliers could also decide to reduce inventories or raise prices to increase
cash flow. The loss of any one or more of our suppliers could have an adverse effect on our business, and we may be unable to
secure alternative manufacturing arrangements. Even if we are able to obtain alternative manufacturing arrangements, such arrangements
may not be on terms similar to our current arrangements or we may be forced to accept less favorable terms in order to secure
a supplier as quickly as possible so as to minimize the impact on our business operations. In addition, any required changes in
our suppliers could cause delays in our operations and increase our production costs and new suppliers may not be able to meet
our production demands as to volume, quality or timeliness.

11

The
markets for our products and services are highly competitive and if market share is lost, we may be unable to lower our cost structure
quickly enough to offset the loss of revenue.

Within
the cinema market, the domestic and international markets for our product lines are highly competitive, evolving and subject to
rapid technological and other changes. Our Digital Media business, in particular, is highly dependent on technology. We expect
the intensity of competition in each of these areas to continue in the future for a number of reasons including:

●

Certain
of the competitors for our digital equipment have longer operating histories and greater financial, technical, marketing and
other resources than we do, which, among other things, may permit them to adopt aggressive pricing policies. As a result,
we may suffer from pricing pressures that could adversely affect our ability to generate revenues and our results of operations.
Some of our competitors also have greater name and brand recognition and a larger customer base than us.

●

Some
of our competitors are manufacturing their own digital equipment while we employ a distribution business model through our
distribution agreements with NEC, BARCO and certain other suppliers. As a result, we may suffer from pricing pressures that
could adversely affect our ability to generate revenues.

●

Suppliers
could decide to utilize their current sales force to supply their products directly to customers rather than utilizing channels.

In
addition, we face competition for consumer attention from other forms of entertainment. The other forms of entertainment may be
more attractive to consumers than those utilizing our technologies, which could harm our business, prospects and operating results.

For
these and other reasons, we must continue to enhance our technologies and our existing products and services and introduce new
high quality technologies, products and services to meet the wide variety of competitive pressures that we face. If we are unable
to compete successfully, our business, prospects and results of operations will be materially adversely impacted.

Our
capital allocation strategy may not be successful, which could adversely impact our financial condition.

We
intend to continue investing part of our cash balances in public companies. We intend our investments in public companies to be
made in circumstances where we believe that we will be able to exercise some degree of influence or control. To date, our investments
are highly concentrated in three public companies – 1347 Property Insurance Holdings, Inc. (Nasdaq: PIH), RELM Wireless
Corporation (NYSE American: RWC) and Itasca Capital Ltd. (TSX Venture: ICL). In some cases, funds controlled by the Company’s
affiliate Fundamental Global Investors, LLC have, and may in the future, acquire positions in the same public companies as the
Company. These types of investments are riskier than holding our cash balances as bank deposits or, for example, such conservative
investments as treasury bonds or money market funds. There can be no assurance that we will be able to maintain or enhance the
value or the performance of the companies in which we have invested or may invest in the future, or that we will achieve returns
or benefits from these investments. Under certain circumstances, significant declines in the fair values of these investments
may require the recognition of other-than-temporary impairment losses. We may lose all or part of our investment relating to such
companies if their value decreases as a result of their financial performance or for any other reason. If our interests differ
from those of other investors in companies over which we do not have control, we may be unable to effect any change at those companies.
We are not required to meet any diversification standards, and our investments may continue to remain concentrated. If our capital
allocation strategy is not successful or we achieve less than expected returns from these investments, it could have a material
adverse effect on us. The Board of Directors may also change our capital allocation strategy at any time, and such changes could
further increase our exposure, which could adversely impact us.

If
we are not able to develop and introduce enhancements and new features that achieve market acceptance or that keep pace with technological
developments, our business could be harmed.

We
operate in a dynamic environment characterized by rapidly changing technologies and industry and legal standards. Innovation is
critical to our success. The introduction of new software solutions by our competitors, the market acceptance of solutions based
on new or alternative technologies or the emergence of new industry standards could render our platform obsolete. Our ability
to compete successfully, attract new customers and increase revenues from existing customers depends in part on our ability to
enhance and improve our existing software platform and to identify new software partners, which would allow us to continually
introduce or acquire new features that are in demand by the market that we serve. The success of any enhancement or new solution
depends on several factors, including timely completion and integration, adequate quality testing, introduction and market acceptance.
Any new platform or feature that we develop or acquire may not be introduced in a timely or cost-effective manner, may contain
defects or may not achieve the broad market acceptance necessary to generate significant revenues. If we are unable to anticipate,
or timely and successfully develop or acquire, new offerings or features, or enhance our existing platform to meet customer requirements,
our business and operating results will be adversely affected. Additionally, for technologies that are acquired, we may not be
able to successfully integrate or monetize the acquired technology at a rate that is consistent with the market’s expectations,
which could have a material adverse impact on us.

12

If
we are unable to maintain our brand and reputation, our business, results of operations and prospects could be materially harmed.

Our
business, results of operations and prospects depend, in part, on maintaining and strengthening our brand and reputation for providing
high quality products and services. Reputational value is based in large part on perceptions. Although reputations may take decades
to build, any negative incidents can quickly erode trust and confidence, particularly if they result in adverse publicity, governmental
investigations or litigation. If problems with our products cause operational disruption or other difficulties, or there are delays
or other issues with the delivery of our products or services, our brand and reputation could be diminished. Damage to our reputation
could also arise from actual or perceived legal violations, product safety issues, data security breaches, actual or perceived
poor employee relations, actual or perceived poor service, actual or perceived poor privacy practices, operational or sustainability
issues, actual or perceived ethical issues or other events within or outside of our control that generate negative publicity with
respect to us. Any event that has the potential to negatively impact our reputation could lead to lost sales, loss of new opportunities
and retention and recruiting difficulties. If we fail to promote and maintain our brand and reputation successfully, our business,
results of operations and prospects could be materially harmed.

Our
sales cycle can be long and unpredictable, particularly with respect to large enterprises, which could harm our business and operating
results.

The
timing of our sales is difficult to predict. Our sales efforts involve educating our customers, frequently at an executive level,
about the use, potential return on investment, technical capabilities, security and other benefits of our solution. Customers
often undertake a prolonged product-evaluation process, which frequently involves not only our solutions but also those of our
competitors. As we continue to target our sales efforts at large enterprise customers, we will face greater costs, long sales
cycles and less predictability in completing some of our sales. In this market segment, the customer’s decision to subscribe
to our solution is often an enterprise-wide decision and may require us to provide even greater levels of education regarding
the use and benefits of our solution and obtain support from multiple departments. In addition, prospective enterprise customers
may require customized features and functions unique to their business process that may need acceptance testing related to those
unique features. As a result of these factors, these sales opportunities may require us to devote greater sales support, operational
support and professional services resources to individual customers, increasing costs and time required to complete sales and
diverting our own sales and professional services resources to a smaller number of larger transactions. The long and unpredictable
nature of our sales cycle could materially adversely impact our business and results of operations.

We
are substantially dependent upon significant customers who could cease purchasing our products at any time.

The
Company’s top ten customers accounted for approximately 53% of 2017 consolidated net revenues. Trade accounts receivable
from these customers represented approximately 39% of net consolidated receivables at December 31, 2017. We had three customers
that each individually accounted for over 10% of our consolidated net revenues in 2017. Most arrangements with these customers
are made by purchase order and are terminable at will by either party. A significant decrease or interruption in business from
the Company’s significant customers could have a material adverse effect on the Company’s business, financial condition
and results of operations.

The
Company has deferred tax assets that are subject to annual valuation testing, which assets may not be realized, thus negatively
impacting us.

The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. We consider the scheduled
reversal of taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment.
A cumulative loss in a particular tax jurisdiction in recent years is a significant piece of evidence with respect to the realizability
that is difficult to overcome. Based on the available objective evidence, including recent updates to the taxing jurisdictions
generating income, we concluded that we should maintain our valuation allowance against our U.S. deferred tax assets as of December
31, 2017. We face risks that our recorded deferred tax assets may not be realized, thus negatively impacting us.

13

Our
business is subject to the economic and political risks of selling products in foreign countries.

Sales
outside the United States (mainly cinema) continue to be significant, accounting for approximately 21% of consolidated sales in
fiscal 2017. We expect that international sales will continue to be important to our business for the foreseeable future. Foreign
sales are subject to general political and economic risks, including the recent presidential and congressional elections in the
United States, which have created uncertainty regarding international trade, unanticipated or unfavorable circumstances arising
from host country laws or regulations, unfavorable changes in U.S. policies on international trade and investment, the imposition
of governmental economic sanctions on countries in which we do business, quotas, capital controls or other trade barriers, whether
adopted by individual governments or addressed by regional trade blocks, threats of war, terrorism or governmental instability,
currency controls, fluctuating exchange rates with respect to sales not denominated in U.S. dollars, changes in import/export
regulations, tariffs and freight rates, potential negative consequences from changes to taxation policies, restrictions on the
transfer of funds into or out of a country and the disruption of operations from labor and political disturbances. Government
policies on international trade and investment can affect the demand for our products, impact the competitive position of our
products or prevent us from being able to sell or manufacture products in certain countries. The implementation of more restrictive
trade policies, such as higher tariffs or new barriers to entry, in countries in which we sell large quantities of products and
services could negatively impact our business, results of operations and financial condition. For example, a government’s
adoption of “buy national” policies or retaliation by another government against such policies could have a negative
impact on our results of operations. If we were unable to navigate the foreign regulatory environment, or if we were unable to
enforce our contract rights in foreign countries, our business could be adversely impacted. Any of these events could reduce our
sales, limit the prices at which we can sell our products, interrupt our supply chain or otherwise have an adverse effect on our
operating performance.

In
addition, a portion of our foreign sales are denominated in foreign currencies and amounted to $4.7 million in 2017. To the extent
that orders are denominated in foreign currencies, our reported sales and earnings are subject to foreign exchange fluctuations.
In addition, there can be no assurance that our remaining international customers will continue to accept orders denominated in
U.S. dollars. For those sales which are denominated in U.S. dollars, a weakening in the value of foreign currencies relative to
the U.S. dollar could have a material adverse impact on us by increasing the effective price of our products in international
markets. Certain areas of the world are also more cost conscious than the U.S. market and there are instances where our products
are priced higher than local manufacturers. We are also exposed to foreign currency fluctuations between the Canadian and U.S.
dollar due to our screen manufacturing facility in Canada where a majority of its sales are denominated in the U.S. dollar while
its expenses are denominated in Canadian currency. We cannot predict the effects of exchange rate fluctuations upon our future
operating results because of the number of currencies involved, the variability of currency exposures and the potential volatility
of currency exchange rates.

Any
of these factors could adversely affect our foreign activities and our business, financial condition and results of operations.

The
risk of non-compliance with U.S. and foreign laws and regulations applicable to our international operations could have a significant
impact on our results of operations, financial condition and strategic objectives.

Our
global operations subject us to regulation by U.S. federal and state laws and multiple foreign laws, regulations and policies,
which could result in conflicting legal requirements. These laws and regulations are complex, change frequently, have tended to
become more stringent over time and increase our cost of doing business. These laws and regulations include import and export
control, environmental, health and safety regulations, data privacy requirements, international labor laws and work councils and
anti-corruption and bribery laws such as the U.S. Foreign Corrupt Practices Act, the U.N. Convention Against Bribery and local
laws prohibiting corrupt payments to government officials. We are subject to the risk that we, our employees, our affiliated entities,
contractors, agents or their respective officers, directors, employees and agents may take action determined to be in violation
of any of these laws. An actual or alleged violation could result in substantial fines, sanctions, civil or criminal penalties,
and debarment from government contracts, curtailment of operations in certain jurisdictions, competitive or reputational harm,
litigation or regulatory action and other consequences that might adversely affect our results of operations, financial condition
and strategic objectives.

14

A
reversal of the U.S. economic recovery and a return to volatile or recessionary conditions in the United States or abroad could
adversely affect our business or our access to capital markets in a material manner.

Worsening
economic and market conditions, downside shocks, or a return to recessionary economic conditions could serve to reduce demand
for our products and adversely affect our operating results. These economic conditions may also impact the financial condition
of one or more of our key suppliers, which could affect our ability to secure product to meet our customers’ demand. In
addition, a downturn in the cinema market could impact the valuation and collectability of certain long-term receivables held
by us. We could also be adversely affected by such factors as changes in foreign currency rates and weak economic and political
conditions in each of the countries in which we sell our products.

We
rely extensively on our information technology systems and are vulnerable to damage and interruption.

We
rely on our information technology systems and infrastructure to process transactions, summarize results and manage our business,
including maintaining client and supplier information. Additionally, we utilize third parties, including cloud providers, to store,
transfer and process data. Our information technology systems, as well as the systems of our customers, suppliers and other partners,
are vulnerable to outages and an increasing risk of continually evolving deliberate intrusions to gain access to company sensitive
information. Likewise, data security incidents and breaches by employees and others with or without permitted access to our systems
pose a risk that sensitive data may be exposed to unauthorized persons or to the public. We may be unable to prevent outages or
security breaches in our systems that could adversely affect our results of operations and cash flows, as well as our business
reputation.

Any
failure to maintain the security of information relating to our customers, employees and suppliers, whether as a result of cybersecurity
attacks or otherwise, could expose us to litigation, government enforcement actions and costly response measures, and could disrupt
our operations and harm our reputation.

In
connection with the sales and marketing of our products and services, we may from time to time transmit confidential information.
We also have access to, collect or maintain private or confidential information regarding our customers, employees, and suppliers,
as well as our business. Cyberattacks are rapidly evolving and becoming increasingly sophisticated. It is possible that computer
hackers and others might compromise our security measures, or security measures of those parties that we do business with now
or in the future, and obtain the personal information of our customers, employees and suppliers or our business information. A
security breach of any kind, including physical or electronic break-ins, computer viruses and attacks by hackers, employees or
others, could expose us to risks of data loss, litigation, government enforcement actions and costly response measures, and could
seriously disrupt our operations. Any resulting negative publicity could significantly harm our reputation, which could cause
us to lose market share and have an adverse effect on our results of operations.

If
we fail to retain key members of management, or successfully integrate new executives, our business may be materially harmed.

Our
future success depends, in substantial part, on the efforts and abilities of our current management team. If certain of these
individuals were to leave unexpectedly, we could experience substantial loss of institutional knowledge, face difficulty in hiring
qualified successors and could experience a loss in productivity while any successor obtains the necessary training and experience.
Our loss of services of any of our senior executives, or any failure to effectively integrate new management into our business
processes, controls, systems and culture, could have a material adverse effect on us.

We
have made changes to our management team in recent years. On November 24, 2015, the Board of Directors appointed D. Kyle Cerminara
as our Chairman and Chief Executive Officer, effective immediately. Mr. Cerminara has been a member of the Board since February
2015 and has served as its Chairman since May 2015, assuming the role of Executive Chairman in September 2015. On November 2,
2015, Stephen L. Schilling joined us as President of the Digital Media business, and Ray F. Boegner was promoted to the newly
created position of President of the Cinema business. On March 29, 2017, Lance V. Schulz was appointed as our Senior Vice President,
Chief Financial Officer and Treasurer. These or other changes in key management could create uncertainty among our employees,
suppliers and other business partners and are resulting in changes to the strategic direction of our business, any of which could
have a material adverse effect on us.

15

Our
previous and any potential future acquisitions, strategic investments, entry into new lines of business, divestitures, mergers
or joint ventures may subject us to significant risks, any of which could harm our business.

Our
long-term strategy may include identifying and acquiring, investing in or merging with suitable candidates on acceptable terms,
entry into new lines of business and markets or divesting of certain business lines or activities. In particular, over time, we
may acquire, make investments in or merge with providers of product offerings that complement our business or may terminate such
activities. Mergers, acquisitions, divestitures and entries into new lines of business include a number of risks and present financial,
managerial and operational challenges, including but not limited to:

●

diversion
of management attention from running our existing business;

●

possible
material weaknesses in internal control over financial reporting;

increased
costs to integrate, develop or, in the case of a divestiture, separate the technology, personnel, customer base and business
practices of the acquired, new or divested business or assets;

●

potential
exposure to material liabilities not discovered in the due diligence process;

●

potential
adverse effects on reported operating results due to possible write-down of goodwill and other intangible assets associated
with acquisitions;

●

potential
damage to customer relationships or loss of synergies in the case of divestitures; and

●

unavailability
of acquisition financing or inability to obtain such financing on reasonable terms.

Any
acquired business, technology, service or product or entry into a new line of business could significantly under-perform relative
to our expectations, and may not achieve the benefits we expect. For example, our entry into the taxicab advertising line of business
in 2018 poses many of the risks discussed above. For all these reasons, our pursuit of an acquisition, investment, new line of
business, divestiture, merger or joint venture could cause our actual results to differ materially from those anticipated.

We
own or otherwise have rights to various trademarks and trade names used in conjunction with the sale of our products, the most
significant of which are Strong® and Convergent™. We rely on trademark laws to protect these intellectual
property rights. We cannot assure that these intellectual property rights will be effectively utilized or, if necessary, successfully
asserted. There is a risk that we will not be able to obtain and perfect our own intellectual property rights, or, where appropriate,
license from others, intellectual property rights necessary to support new product introductions. Our intellectual property rights,
and any additional rights we may obtain in the future, may be invalidated, circumvented or challenged in the future. Our failure
to perfect or successfully assert intellectual property rights could harm our competitive position and could negatively impact
us.

16

Natural
disasters and other catastrophic events beyond our control could adversely affect our business operations and financial performance.

The
occurrence of one or more natural disasters, such as fires, hurricanes, tornados, tsunamis, floods and earthquakes; geo-political
events, such as civil unrest in a country in which our suppliers are located or terrorist or military activities disrupting transportation,
communication or utility systems; or other highly disruptive events, such as nuclear accidents, pandemics, unusual weather conditions
or cyberattacks, could adversely affect our operations and financial performance. Such events could result, among other things,
in operational disruptions, physical damage to or destruction or disruption of one or more of our properties or properties used
by third parties in connection with the supply of products or services to us, the lack of an adequate workforce in parts or all
of our operations and communications and transportation disruptions. These factors could also cause consumer confidence and spending
to decrease or result in increased volatility in the United States and global financial markets and economy. Such occurrences
could have a material adverse effect on us and could also have indirect consequences such as increases in the costs of insurance
if they result in significant loss of property or other insurable damage.

The
insurance that we maintain may not fully cover all potential exposures.

We
maintain property, business interruption and casualty insurance but such insurance may not cover all risks associated with the
hazards of our business and is subject to limitations, including deductibles and maximum liabilities covered. We are potentially
at risk if one or more of our insurance carriers fail. Additionally, severe disruptions in the domestic and global financial markets
could adversely impact the ratings and survival of some insurers. In the future, we may not be able to obtain coverage at current
levels, and our premiums may increase significantly on coverage that we maintain.

Entities
affiliated with Fundamental Global Investors, LLC, whose interests may differ from the interests of our other stockholders, have
significant influence over the Company.

The
interests of Fundamental Global Investors, LLC and its affiliates may differ from the interests of our other stockholders. Fundamental
Global Investors, LLC and its affiliates hold approximately 28.7% of the Company’s outstanding shares of common stock as
of December 31, 2017. Mr. Cerminara, the Chief Executive Officer, Co-Founder and Partner of Fundamental Global Investors, LLC,
serves as our Chairman and Chief Executive Officer. In addition, Lewis M. Johnson, the President, Co-Founder and Partner of Fundamental
Global Investors, LLC, serves as a member of our board of directors. As a result of its ownership position and Mr. Cerminara’s
and Mr. Johnson’s positions with the Company, Fundamental Global Investors, LLC has the ability to exert significant influence
over our policies and affairs, including the power to impact the election of our directors, appointment of our management and
approval of any action requiring a shareholder vote, such as amendments to our certificate of incorporation, bylaws, significant
stock issuances, mergers and asset sales. Fundamental Global Investors, LLC may have interests that differ from those of our other
stockholders and may vote in a way with which our other stockholders disagree and which may be adverse to their interests. Fundamental
Global Investors, LLC’s significant ownership may also have the effect of delaying, preventing or deterring a change of
control of the Company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of
a sale of the Company and might ultimately affect the market price of our common stock.

Our
stock price is vulnerable to significant fluctuations.

The
trading price of our common stock has been highly volatile in the past and could be subject to significant fluctuations in response
to variations in quarterly operating results, general conditions in the industries in which we operate and other factors. In addition,
the stock market is subject to price and volume fluctuations affecting the market price for the stock of many companies generally,
which fluctuations often are unrelated to operating performance.

Item
1B. Unresolved Staff Comments

The
Company has no unresolved staff comments to report pursuant to this item.

17

Item
2. Properties

Our
headquarters are located at 11422 Miracle Hills Drive, Omaha, Nebraska, where we lease office space. The premises are used for
offices supporting both of our operating segments and operating the Omaha NOC. The lease expires in November 2021. In addition,
our subsidiaries owned or leased the following facilities as of December 31, 2017:

●

Our
Strong/MDI Screen Systems, Inc. subsidiary owns an 83,000 square-foot manufacturing plant in Joliette, Quebec, Canada. The
facilities are used for offices, manufacturing, assembly and distribution of the cinema and other screens. We believe this
facility is well maintained and adequate for future needs, and is used by our Cinema segment.

●

In
addition, the Company leases office space in Mooresville, North Carolina, which is used by both of our operating segments.
The lease expires in November of 2020.

●

Our
Convergent Media Systems Corporation subsidiary owns a 43,000 square-foot office facility in Alpharetta, Georgia, which is
subject to first and second lien deeds of trust as described in Item 7 – Management’s Discussion and Analysis
of Financial Condition and Results of Operations, Liquidity and Capital Resources. The facility is used for offices and operating
the Alpharetta NOC. Convergent also leases our distribution facility, which is in Lawrenceville, Georgia, where we lease approximately
40,000 square feet. The lease expires in April 2020. The premises are used for distribution of certain products. In addition,
Convergent leases two office facilities in Toronto, Ontario, Canada. These leases expire in March 2018 and October 2019. The
office lease expiring March 2018 is not being renewed, as we intend to consolidate our Toronto operations into the remaining
location. We believe these facilities are adequate for future needs and are used by both of our operating segments.

We
do not anticipate any difficulty in retaining occupancy of any leased facilities, either by renewing leases prior to expiration
or replacing them with equivalent leased facilities.

Item
3. Legal Proceedings

In
the ordinary course of our business operations, we are involved, from time to time, in certain legal disputes. No such disputes,
individually or in the aggregate, are expected to have a material effect on our business or financial condition.

Our
common stock is listed and traded on the NYSE American under the symbol “BTN.” The following table sets forth the
high and low per share sale price for the common stock as reported by the NYSE American.

High

Low

2017

First
Quarter

$

8.10

$

5.70

Second
Quarter

7.35

5.60

Third
Quarter

7.00

5.50

Fourth
Quarter

6.55

4.05

2016

First
Quarter

$

4.77

$

4.00

Second
Quarter

5.99

4.21

Third
Quarter

7.01

5.09

Fourth
Quarter

8.00

6.10

According
to the records of our transfer agent, we had 113 stockholders of record of our common stock on March 2, 2018. Because brokers
and other institutions hold many of our shares on behalf of stockholders, we are unable to estimate the total number of stockholders
represented by these record holders. The last reported per share sale price for the common stock on March 2, 2018 was $5.25. We
had 14,422,090 shares of common stock outstanding on March 2, 2018.

Stock
Repurchases

On
August 20, 2015, we announced that our Board of Directors adopted a stock repurchase program authorizing the repurchase of up
to 700,000 shares of our outstanding common stock pursuant to a plan adopted under Rule 10b5-1 of the Securities Exchange Act
of 1934 (as amended). The program has no expiration date. There were no repurchases during the fourth quarter of 2017. As of December
31, 2017, there were 636,931 shares that may yet be purchased under the stock repurchase program.

Dividend
Policy

We
intend to retain our earnings to assist in financing our business and making investments and do not anticipate paying cash dividends
on our common stock in the foreseeable future. The declaration and payment of dividends by the Company are also subject to the
discretion of the Board. Any determination by the Board as to the payment of dividends in the future will depend upon, among other
things, business conditions, our financial condition and capital requirements, as well as any other factors deemed relevant by
the Board. We have not paid cash dividends since we went public in 1995.

PERFORMANCE
GRAPH

The
following graph compares Ballantyne’s cumulative total stockholder return over the last five fiscal years with the cumulative
total returns of the New York Stock Exchange Composite Index (“NYSE”), the Russell 2000 Index and the Research Data
Group, Inc. (“RDG”) SmallCap Technology Index. The graph assumes $100 was invested on December 31, 2012, and assumes
reinvestment of all dividends.

19

12/12

12/13

12/14

12/15

12/16

12/17

Ballantyne
Strong, Inc.

100.00

140.30

125.45

139.70

242.42

140.91

Russell 2000

100.00

138.82

145.62

139.19

168.85

193.58

NYSE
Composite

100.00

126.28

134.81

129.29

144.73

171.83

RDG
SmallCap Technology

100.00

133.48

117.53

89.29

106.10

128.29

Item
6. Selected Financial Data

The
selected statement of operations data for the years ended December 31, 2017, 2016 and 2015, and the selected balance sheet data
at December 31, 2017 and 2016, are derived from, and are qualified by reference to, the audited consolidated financial statements
of the Company included elsewhere in this Annual Report on Form 10-K. The selected statement of operations data for the years
ended December 31, 2014 and 2013, and the balance sheet data at December 31, 2015, 2014, and 2013, are derived from audited consolidated
financial statements not included herein. The Company acquired Peintures Elite, Inc. on September 13, 2013 and Convergent Media
Systems on October 1, 2013. In addition, the Company reclassified a portion of selected operations to discontinued operations
in 2016. All prior periods have been restated to reflect the reclassification. See Note 2 to the Company’s consolidated
financial statements.

20

Year
Ended December 31,

2017

2016

2015

2014

2013

(in
thousands, except per share data)

Statement
of operations data

Net
revenue

$

72,646

$

76,254

$

78,059

$

83,165

$

88,891

Gross
profit

$

18,934

$

21,156

$

16,712

$

17,089

$

15,434

Net
(loss) earnings from continuing operations

$

(3,592

)

$

869

$

(16,724

)

$

142

$

252

Net
(loss) earnings per share from continuing operations

Basic

$

(0.25

)

$

0.06

$

(1.19

)

$

0.01

$

0.02

Diluted

$

(0.25

)

$

0.06

$

(1.19

)

$

0.01

$

0.02

Balance
sheet data

Working
capital

$

13,562

$

19,433

$

28,179

$

40,228

$

44,042

Total
assets

$

59,014

$

62,439

$

66,864

$

82,060

$

83,630

Long-term
debt, net of current portion

$

1,870

$

—

$

—

$

—

$

—

Stockholders'
equity

$

44,122

$

45,154

$

44,512

$

60,847

$

61,499

Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The
following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto appearing
elsewhere in this report. Management’s discussion and analysis contains not only historical information, but also forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Statements that are not historical are forward-looking and reflect expectations for future Company performance. For these statements,
the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.

Forward-looking
statements involve a number of risks and uncertainties, including but not limited to those discussed in the “Risk Factors”
section contained in Item 1A. Given the risks and uncertainties, readers should not place undue reliance on any forward-looking
statement and should recognize that the statements are predictions of future results which may not occur as anticipated. Actual
results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the
risks and uncertainties described herein, as well as others not now anticipated. New risk factors emerge from time to time and
it is not possible for management to predict all such risk factors, nor can it assess the impact of all such factors on our business
or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained
in any forward-looking statements. Except as required by law, the Company assumes no obligation to update forward-looking statements
to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.

Overview

The
Company is a holding company with diverse business activities focused on serving the cinema, retail, financial, advertising
and government markets. It designs, integrates, and installs technology solutions for a broad range of applications; develops
and delivers out-of-home messaging, advertising and communications; manufactures projection screens; and provides managed services,
including monitoring of networked equipment, to our customers. We add value through our design, engineering, manufacturing excellence
and customer service. We have two primary operating segments: Cinema and Digital Media. Our Cinema segment provides a full range
of products and services to the theater exhibition industry, including digital projectors, state of the art projection screens,
servers, library management systems, menu boards, flat panel displays, sound systems, maintenance services and network monitoring
services. Our Digital Media segment delivers digital signage solutions and services across two primary markets: digital out-of-home
and enterprise video.

21

Our
segments were determined based on the manner in which management organizes segments for making operating decisions and assessing
performance. Approximately 67% of fiscal year 2017 revenues were from Cinema and 33% from Digital Media. During the fourth quarter
of 2017, we reorganized our corporate reporting structure and moved the operations of Strong Technical Services, Inc. from the
Digital Media segment to the Cinema segment. All prior periods have been recast in our segment reporting to reflect the current
segment organization. Additional information related to our reporting segments can be found in the notes to the consolidated financial
statements.

Results
of Operations:

The
following table sets forth, for the periods indicated, the percentage of net revenues represented by certain items reflected in
our consolidated statements of operations.

Years
ended December 31,

2017

2016

2015

Net
revenues

100.0

%

100.0

%

100.0

%

Cost
of revenues

73.9

72.3

78.6

Gross
profit

26.1

27.7

21.4

Selling
and administrative expenses

29.6

22.1

26.3

(Loss)
income from operations

(3.9

)

5.5

(5.4

)

Net
(loss) earnings from continuing operations

(4.9

)

1.1

(21.4

)

2017
Compared to 2016

Revenues

Net
revenues during 2017 decreased 4.7% to $72.6 million from $76.3 million in 2016.

2017

2016

$
Change

%
Change

(dollars
in thousands)

Cinema

$

48,937

$

54,775

$

(5,838

)

(10.7

)%

Digital
Media

24,484

21,996

2,488

11.3

%

Other

39

—

39

N/A

Total
segment revenues

73,460

76,771

(3,311

)

(4.3

)%

Eliminations

(814

)

(517

)

(297

)

57.4

%

Total
net revenues

$

72,646

$

76,254

$

(3,608

)

(4.7

)%

Cinema

Sales
of Cinema products and services decreased 10.1% to $49.3 million in 2017 from $54.8 million in 2016. This decrease was driven
by an $8.5 million decrease in sales of digital projectors and lamps, partially offset by increases totaling $2.9 million in non-recurring
maintenance services, including installations, and sales of digital displays. We expect revenue from lamp sales to remain low
in future years, as we terminated our distributorship for certain lamp products in July 2017 due to the very low margins earned
on these products.

22

Digital
Media

Sales
of Digital Media products and services increased 11.3% to $24.5 million in 2017 from $22.0 million in 2016. Recurring revenue
from digital signage as a service increased $1.1 million and non-recurring installation and demand revenue increased by $1.6 million
in 2017. These increases were offset by a decrease in non-recurring equipment sales of $0.7 million. The increase in non-recurring
installation revenue was primarily related to a one-time project with a specific customer that was substantially completed in
2017 and is not expected to continue in the future.

Foreign
Revenues

Sales
outside the United States (primarily from the Cinema segment) decreased 7.2% to $15.2 million in 2017 from $16.3 million in 2016.
Decreased sales in China, Mexico, Europe and other parts of Asia were partially offset by increased sales in Canada. Export sales
are sensitive to the rate of cinema growth in developing countries, as well as normal replacement cycles in developed countries.
Export sales are also sensitive to worldwide economic and political conditions that lead to volatility. Certain areas of the world
are more cost conscious than the U.S. market and there are instances where our products are priced higher than products of local
manufacturers, making it more difficult to generate sufficient profit to justify selling into these regions. Additionally, foreign
exchange rates and excise taxes sometimes make it difficult to market our products overseas at reasonable selling prices.

Gross
Profit

Consolidated
gross profit decreased 10.5% to $18.9 million in 2017 from $21.2 million in 2016 and, as a percentage of total revenues, decreased
to 26.1% in 2017 from 27.7% in 2016.

2017

2016

$
Change

%
Change

(dollars
in thousands)

Cinema

$

14,919

$

17,160

$

(2,241

)

(13.1

)%

Digital
Media

3,976

3,996

(20

)

(0.5

)%

Other

39

—

39

N/A

Total
gross profit

$

18,934

$

21,156

$

(2,222

)

(10.5

)%

Gross
profit in the Cinema segment amounted to $14.9 million or 30.5% of revenues in 2017 compared to $17.2 million or 31.3%
of revenues in 2016. The decrease in gross margin dollars and as a percentage of revenues was driven by lower revenue coverage
of fixed operating costs and an increase in inventory reserves.

Gross
profit in the Digital Media segment amounted to $4.0 million or 16.2% of revenues in 2017 compared to $4.0 million or 18.2% of
revenues in 2016. The decrease in gross margin as a percentage of revenues was driven by product mix, as lower margin equipment
and installation revenues made up a larger percentage of total revenues.

23

Operating
(Loss) Income

We
generated an operating loss of $2.8 million in 2017 compared to operating income of $4.2 million in 2016.

2017

2016

$
Change

%
Change

(dollars
in thousands)

Cinema

$

10,678

$

13,398

$

(2,720

)

(20.3

)%

Digital
Media

(3,902

)

(1,596

)

(2,306

)

144.5

%

Other

(382

)

(88

)

(294

)

334.1

%

Total
segment operating income

6,394

11,714

(5,320

)

(45.4

)%

Unallocated
general and administrative expenses

(9,208

)

(7,550

)

(1,658

)

22.0

%

Total
operating (loss) income

$

(2,814

)

$

4,164

$

(6,978

)

N/A

We
generated operating income in the Cinema segment of $10.7 million in 2017 compared to $13.4 million in 2016. This decrease was
driven primarily by lower gross profit as described above.

The
Digital Media segment generated an operating loss of $3.9 million in 2017 compared to $1.6 million in 2016. This increase in operating
loss was driven primarily by higher selling, general and administrative expenses, including bad debt expense of $0.8 million and
contract termination expense of $0.4 million.

Unallocated
general and administrative expenses amounted to $9.2 million in 2017 compared to $7.6 million in 2016. The increase was driven
primarily by increased costs related to consulting, audit and tax, information technology, employee compensation and benefits
and stock-based compensation, partially offset by lower bonus expense.

Other
Financial Items

In
2017, total other income of $0.7 million primarily consisted of a $1.1 million fair value adjustment to our notes receivable,
partially offset by $0.3 million of foreign currency transaction losses and $0.1 million of net interest expense. In 2016, total
other expense of $0.4 million primarily consisted of foreign currency transaction losses of $1.0 million, partially offset by
$0.5 million of excess joint venture distributions recognized as income.

In
assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income. We consider the scheduled reversal of taxable temporary differences, projected future taxable income
and tax planning strategies in making this assessment. A cumulative loss in a particular tax jurisdiction in recent years is a
significant piece of evidence with respect to the realizability that is difficult to overcome. Based on the available objective
evidence, including recent updates to the taxing jurisdictions generating income, we concluded that a valuation allowance of $12.3
million should be recorded against our U.S. tax jurisdiction deferred tax assets as of December 31, 2017.

In
December 2017, the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”), was signed into law in the United States. The
law includes significant changes to the United States corporate income tax system, including a federal corporate rate reduction
and the transition of the United States from a worldwide tax system to a territorial tax system. As part of the transition to
a territorial tax system, the 2017 Tax Act requires taxpayers to calculate a one-time transition tax based on the deemed repatriation
of undistributed earnings of foreign subsidiaries. We currently are analyzing the 2017 Tax Act, and in certain areas, have made
provisional estimates of the effects on our consolidated financial statements and tax disclosures, including the amount of the
repatriation tax and changes to our existing deferred tax balances.

24

Overall,
we recorded income tax expense of approximately $3.4 million in 2017 compared to income tax expense of $3.0 million in 2016. Our
income tax expense consists primarily of income tax on foreign earnings. Due to the full valuation allowance recorded against
our U.S. tax jurisdiction deferred tax assets as of December 31, 2017, we estimated the impact of the 2017 Tax Act on our 2017
net income tax expense to be zero.

We
recorded equity method investment income of $2.0 million in 2017, consisting primarily of $2.1 million from our investment in
Itasca Capital, Ltd. Equity method investment income in 2016 was not significant.

We
recorded a net loss of $25 thousand in 2017 related to our discontinued China operations compared to a net loss of $1.3 million
in 2016, as we completed the sale of the remaining assets in the second quarter of 2017.

As
a result of the items outlined above, we recorded a net loss of $3.6 million and $0.25 basic and diluted losses per share in 2017,
compared to a net loss of $0.4 million and $0.03 basic and diluted losses per share in 2016.

2016
Compared to 2015

Revenues

Net
revenues for 2016 decreased 2.3% to $76.3 million from $78.1 million for 2015.

2016

2015

$
Change

%
Change

(dollars
in thousands)

Cinema

$

54,775

$

60,839

$

(6,064

)

(10.0

)%

Digital
Media

21,996

17,433

4,563

26.2

%

Total
segment revenues

76,771

78,272

(1,501

)

(1.9

)%

Eliminations

(517

)

(213

)

(304

)

142.7

%

Total
net revenues

$

76,254

$

78,059

$

(1,805

)

(2.3

)%

Cinema

Sales
of Cinema products and services decreased 10.0% to $54.8 million in 2016 from $60.8 million in 2015. This decrease was driven
primarily by a $6.5 million decrease in sales of digital projectors and lamps, partially offset by increased screen sales.

Digital
Media

Sales
of Digital Media products and services increased 26.2% to $22.0 million in 2016 from $17.4 million in 2015. The increase of $4.6
million was driven by increased sales of displays and media players, non-recurring installation services and non-recurring maintenance
revenue, partially offset by decreased sales of recurring maintenance services.

Foreign
Revenues

Sales
outside the United States (primarily from the Cinema segment) decreased 5.6% to $16.3 million in 2016 from $17.3 million in 2015.
Decreased sales in Mexico, Europe, Canada and Latin America were partially offset by increased sales in China and other areas
of Asia.

25

Gross
Profit

Consolidated
gross profit increased 26.6% to $21.2 million in 2016 from $16.7 million in 2015 and, as a percentage of total revenues, increased
to 27.7% in 2016 from 21.4% in 2015.

2016

2015

$
Change

%
Change

(dollars
in thousands)

Cinema

$

17,160

$

15,163

$

1,997

13.2

%

Digital
Media

3,996

1,549

2,447

158.0

%

Total
gross profit

$

21,156

$

16,712

$

4,444

26.6

%

Gross
profit in the Cinema segment amounted to $17.2 million, or 31.3% of revenues, in 2016 compared to $15.2 million, or 24.9% of revenues
in 2015. The increase in gross margin dollars and gross margin as a percentage of revenues was driven by a favorable sales mix,
as the mix shifted to more profitable businesses, as well as lower inventory reserve adjustments. These items were partially offset
by the effect of a volume rebate related to customer contract negotiation and an increase in warranty expense in 2016.

Gross
profit in the Digital Media segment amounted to $4.0 million or 18.2% of revenues in 2016 compared to $1.5 million or 8.9% of
revenues in 2015. The increase in gross margin dollars and gross margin as a percentage of revenues was driven by increased revenue
from non-recurring projects and equipment sales and lower inventory reserve adjustments.

Operating
Income (Loss)

We
generated operating income of $4.2 million in 2016 compared to an operating loss of $4.2 million in 2015.

2016

2015

$
Change

%
Change

(dollars
in thousands)

Cinema

$

13,398

$

9,964

$

3,434

34.5

%

Digital
Media

(1,596

)

(3,764

)

2,168

57.6

%

Other

(88

)

—

(88

)

N/A

Total
segment operating income

11,714

6,200

5,514

88.9

%

Unallocated
general and administrative expenses

(7,550

)

(10,407

)

2,857

(27.5

)%

Total
operating income (loss)

$

4,164

$

(4,207

)

$

8,371

N/A

We
generated operating income in the Cinema segment of $13.4 million in 2016 compared to $10.0 million in 2015. This increase in
operating income was driven by primarily by an increase in gross profit dollars as described above, as well as lower selling,
general and administrative expenses.

The
Digital Media segment generated an operating loss of $1.6 million in 2016 compared to $3.8 million in 2015. This decrease in operating
loss was driven primarily by an increase in gross profit dollars as described above.

Unallocated
general and administrative expenses decreased to $7.6 million in 2016 compared to $10.4 million in 2015. The decrease was driven
primarily by restructuring costs incurred in 2015 plus lower compensation costs in 2016 primarily resulting from our 2015 strategic
restructuring. Included in 2015 administrative expenses are $1.5 million of severance, facility consolidation and proxy contest
expenses.

26

Other
Financial Items

In
2016, total other expense of $0.4 million primarily consisted of foreign currency transaction losses of $1.0 million, partially
offset by $0.5 million of excess joint venture distributions recognized as income. In 2015, other income of $0.4 million consisted
of foreign currency transaction gains of $1.6 million and interest income of $0.4 million, partially offset by a $1.6 million
unfavorable fair value adjustment to notes receivable.

In
assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income. The Company considers the scheduled reversal of taxable temporary differences, projected
future taxable income and tax planning strategies in making this assessment. A cumulative loss in a particular tax jurisdiction
in recent years is a significant piece of evidence with respect to the realizability that is difficult to overcome. Based on the
available objective evidence, including recent updates to the taxing jurisdictions generating income, the Company concluded that
a valuation allowance of $8.6 million should be recorded against the Company’s U.S. tax jurisdiction deferred tax assets
as of December 31, 2016.

We
recorded income tax expense of approximately $3.0 million in 2016 compared to $13.0 million in 2015. During 2015, the Company
changed its foreign reinvestment strategy and had accumulated earnings of $20.2 million in excess of what was determined to be
permanently reinvested in Canada, resulting in income taxes of $7.7 million. The effective tax rate differs from the statutory
rates primarily as a result of the valuation allowance recorded against the Company’s U.S. and China tax jurisdiction deferred
tax assets and differing foreign and U.S. tax rates applied to respective pre-tax earnings by tax jurisdiction.

We
recorded a net loss of $1.3 million related to our discontinued operations in 2016 compared to $0.7 million in 2015.

As
a result of the items outlined above, we recorded a net loss of $0.4 million and $0.03 basic and diluted losses per share in 2016,
compared to a net loss of $17.5 million and $1.24 basic and diluted losses per share in 2015.

Liquidity
and Capital Resources

During
the past several years, we have primarily met our working capital and capital resource needs from our operating cash flows and
credit facilities. During the first quarter of 2018, we signed an agreement to provide advertising services on over 3,500 New
York City taxicabs. The advertising will be on a combination of vinyl printed signs and digital signs. We have leased 300 digital
signs, which we expect to install during the first half of 2018. The remainder of the taxicabs will initially feature print advertising.
We expect to convert more taxicabs to digital signs over time. We expect that the new advertising business will negatively impact
our cash flow for the first half of 2018 as we incur costs without collecting revenues during the start-up phase. However, we
believe that our existing sources of liquidity, including cash and cash equivalents, credit facilities and operating cash flow,
will be sufficient to meet our projected capital needs for the foreseeable future. We ended fiscal year 2017 with total cash and
cash equivalents of $4.9 million compared to $7.6 million at December 31, 2016.

As
of December 31, 2017, $3.6 million of the $4.9 million in cash and cash equivalents was held by our Canadian subsidiary, Strong/MDI.
If these funds are repatriated to our operations in the U.S., we would be required to pay Canadian withholding taxes, which have
been fully accrued as of December 31, 2017. Strong/MDI also may make intercompany loans to the U.S. parent company, which do not
trigger Canadian withholding taxes if they meet certain requirements. As of December 31, 2017, the parent company had outstanding
intercompany loans from Strong/MDI of approximately $19.4 million.

On
April 27, 2017, we entered into a debt agreement with a bank consisting of 1) a $2.0 million five-year term loan secured by a
first lien deed of trust on our Alpharetta, GA facility, bearing interest at a fixed rate of 4.5% and payable in equal monthly
installments of principal and interest calculated based on a 20-year amortization schedule with a final balloon payment of approximately
$1.7 million due on May 10, 2022 and 2) a line of credit of up to $1.0 million secured by a second lien deed of trust on our Alpharetta,
GA facility, bearing interest at the Prime Rate published in the Wall Street Journal plus 0.25% (4.75% at December 31, 2017) and
with a term ending May 10, 2018. Under the debt agreement, we must maintain a ratio of total liabilities to tangible net worth
not in excess of 3 to 1 and maintain minimum liquidity of $2.0 million. At December 31, 2017, the balance of the term loan including
current maturities was $2.0 million. We also had outstanding borrowings on our line of credit of $0.5 million and had the ability
to borrow up to an additional $0.5 million. As of December 31, 2017, we were in compliance with our debt covenants.

27

On
September 5, 2017, Strong/MDI entered into a demand credit agreement with a bank consisting of a revolving line of credit for
up to CDN$3.5 million subject to a borrowing base requirement, a 20-year installment loan for up to CDN$6.0 million and a 5-year
installment loan for up to CDN$500,000. Amounts outstanding under the line of credit are payable on demand and will bear interest
at the prime rate established by the lender. Amounts outstanding under the installment loans will bear interest at the prime rate
plus 0.5% and are payable in monthly installments, including interest, over their respective borrowing periods. The lender may
also demand repayment of the installment loans at any time. The Strong/MDI credit facilities are secured by a lien on Strong/MDI’s
Quebec, Canada facility and substantially all of Strong/MDI’s assets. The credit agreement requires Strong/MDI to maintain
a ratio of liabilities to “effective equity” (tangible stockholders’ equity, less amounts receivable from affiliates
and equity method investments) not exceeding 2 to 1, a current ratio (excluding amounts due from related parties) of at least
1.5 to 1 and minimum “effective equity” of CDN$8.0 million. There were no borrowings outstanding at December 31, 2017
on any of the Strong/MDI credit facilities, as Strong/MDI had not yet drawn on the facilities. Strong/MDI was in compliance with
its debt covenants as of December 31, 2017.

Cash
Flows from Operating Activities

The
following table provides information that we use in analyzing our cash flows from operating activities of continuing operations
(in thousands):

Operating
income, excluding noncash operating expenses, is a non-GAAP financial measure that we use only for the purpose of analyzing net
cash provided by (used in) operating activities. It is defined as operating income (loss), adjusted to remove noncash operating
expenses consisting of provisions for doubtful accounts, obsolete inventory and warranty, depreciation and amortization, impairment
of intangible assets, loss on disposal or transfer of assets and stock-based compensation.

Net
cash provided by operating activities from continuing operations was close to breakeven in 2017, as operating income, excluding
noncash operating expenses of $1.8 million and favorable net changes in working capital items of $1.1 million were offset by current
income tax expense (primarily Canadian) of $2.4 million, foreign currency transaction losses of $0.3 million and net interest
expense of $0.1 million. The favorable net change in working capital was primarily due to a $4.9 million reduction in accounts
receivable and $1.5 million reduction in inventory, partially offset by a $3.1 million reduction in accounts payable and accrued
expenses and a $2.6 million reduction in deferred revenue and customer deposits.

28

Net
cash used in operating activities of continuing operations was $0.1 million in 2016, as operating income, excluding noncash operating
expenses of $7.6 million was offset by unfavorable changes in working capital items of $4.1 million, current income tax expense
(mostly Canadian) of $3.0 million and foreign currency transaction losses of $1.0 million. The unfavorable net change in working
capital was primarily due to a $3.8 million increase in accounts receivable and a $1.8 million decrease in current income taxes
payable, partially offset by a $0.9 million increase in accounts payable and a $0.6 million increase in deferred revenue and customer
deposits.

Net
cash provided by operating activities of continuing operations was $6.4 million in 2015, due to operating income, excluding noncash
operating expenses of $3.0 million, favorable net changes in working capital items of $5.7 million and foreign currency transaction
gains of $1.6 million, partially offset by $3.9 million of current income tax expense (mostly Canadian). The favorable net change
in working capital was primarily due to a $7.9 million reduction in accounts receivable, a $1.7 million reduction in inventory
and a $1.6 million increase in current income taxes payable, partially offset by a $3.1 million reduction in accounts payable
and a $1.7 million reduction in deferred revenue and customer deposits.

Cash
Flows from Investing Activities

Net
cash used in investing activities from continuing operations was $5.5 million in 2017. This included $3.3 million of capital expenditures
and $2.5 million of investments in equity securities.

Net
cash used in investing activities from continuing operations was $10.8 million in 2016. This included $7.0 million of investments
in equity securities and $3.8 million of capital expenditures.

Net
cash used in investing activities from continuing operations was $6.2 million in 2015. This included $6.0 million of investments
in equity securities and $0.5 million of capital expenditures, offset by $0.2 million from proceeds from the sale of assets.

Cash
Flows from Financing Activities

Net
cash provided by financing activities was $2.1 million in 2017 due to $2.5 million of proceeds from issuance of debt, offset slightly
by $0.1 million of treasury stock purchases and $0.2 million of capital lease payments.

Net
cash used in financing activities of $0.3 million in 2016 included $0.2 million from purchase of treasury stock and $0.3 million
from capital lease payments, partially offset by $0.1 million of proceeds from exercise of stock options. Net cash used in financing
activities of $0.2 million in 2015 was primarily related to capital lease payments.

The
effect of changes in foreign exchange rates increased (decreased) cash and cash equivalents from continuing operations by $0.5
million, $0.6 million, and $(1.9) million in the years ended December 31, 2017, 2016 and 2015, respectively.

Transactions
with Related and Certain Other Parties

Pursuant
to the proxy contest settlement agreement entered into with Fundamental Global Investors, LLC and certain of its affiliates on
April 21, 2015, the Company expanded its Board of Directors to nine directors and nominated five director candidates from Fundamental
Global’s slate of directors, who were elected at the 2015 Annual Meeting. Fundamental Global Investors, LLC and its affiliates
hold approximately 28.7% of the Company’s outstanding shares of common stock as of December 31, 2017. Mr. D. Kyle Cerminara,
the Chief Executive Officer, Co-Founder and Partner of Fundamental Global Investors, LLC, serves as our Chairman and Chief Executive
Officer. We reimbursed Fundamental Global for its expenses incurred in connection with the proxy contest and settlement agreement
in the amount of $178,415 in 2015. The independent members of the Board of Directors approved the reimbursement.

Our
purchase of the equity securities that comprise our equity method investments were made in companies in which Fundamental Global
has an ownership interest. The independent members of the Board of Directors approved these purchases and we made no payments
to Fundamental Global related to these purchases. See Note 6 to the consolidated financial statements for further information
on the Company’s equity method investments.

29

On
April 27, 2017, we entered into a debt agreement with blueharbor bank. Our Chief Executive Officer serves on the Board of Directors
of blueharbor bank. See “Liquidity and Capital Resources” above for more information about the blueharbor debt agreement.
The independent members of our Board of Directors approved this agreement.

Financial
Instruments and Credit Risk Concentrations

Our
top ten customers accounted for approximately 53% of 2017 consolidated net revenues, including three that each individually accounted
for greater than 10% of 2017 consolidated net revenues. Trade accounts receivable from our top ten customers represented approximately
39% of net consolidated receivables at December 31, 2017. While we believe our relationships with such customers are stable,
most arrangements are made by purchase order and are terminable at will by either party. A significant decrease or interruption
in business from our significant customers could have a material adverse effect on our business, financial condition and results
of operations. We could also be adversely affected by such factors as changes in foreign currency rates and weak economic and
political conditions in each of the countries in which we sell our products.

Financial
instruments that potentially expose us to a concentration of credit risk principally consist of accounts receivable and notes
receivable. We sell products to a large number of customers in many different geographic regions. To minimize credit concentration
risk, we perform ongoing credit evaluations of our customers’ financial condition or use letters of credit.

Hedging
and Trading Activities

Our
primary exposure to foreign currency fluctuations pertains to our operations in Canada. In certain instances, we may enter into
foreign exchange contracts to manage a portion of this risk. We do not have any trading activities that include non-exchange traded
contracts at fair value.

Off
Balance Sheet Arrangements and Contractual Obligations

Our
off balance sheet arrangements consist principally of leasing equipment and facilities under operating leases. The future estimated
payments under these arrangements are summarized below along with our other contractual obligations:

Contractual
Obligations

Total

Payments

2018

2019-2020

2021-2022

2023
+

(in
thousands)

Long-term
debt, including current maturities

$

2,334

$

153

$

306

$

1,875

$

—

Short-term
debt

509

509

—

—

—

Postretirement
benefits

115

15

30

30

40

Capital
leases

367

251

116

—

—

Operating
leases

7,444

1,758

3,242

2,444

—

Contractual
cash obligations

$

10,769

$

2,686

$

3,694

$

4,349

$

40

There
were no other material contractual obligations other than inventory and property, plant and equipment purchases in the ordinary
course of business.

Inflation

We
believe that the relatively moderate rates of inflation in recent years have not had a significant impact on our net revenues
or profitability. Historically, we have been able to offset any inflationary effects by either increasing prices or improving
cost efficiencies.

30

Recently
Issued Accounting Pronouncements

See
Note 3, Summary of Significant Accounting Policies, to the consolidated financial statements for a description of recently issued
accounting pronouncements.

Critical
Accounting Policies and Estimates General

The
following accounting policies involve judgments and estimates used in preparation of the consolidated financial statements. An
accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters
that are uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes
in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial
statements.

Our
accounting policies are discussed in Note 3 to the consolidated financial statements in this report. Management believes the following
critical accounting policies reflect its more significant estimates and assumptions used in the preparation of the consolidated
financial statements.

Revenue
Recognition

We
recognize revenue when all of the following circumstances are satisfied:

●

Persuasive
evidence of an arrangement exists;

●

Delivery
has occurred or services have been rendered;

●

The
seller’s price to the buyer is fixed or determinable; and

●

Collectability
is reasonably assured.

If
an arrangement involves multiple deliverables, the items are analyzed to determine the separate units of accounting, whether the
items have value on a stand-alone basis and whether there is objective and reliable evidence of their fair values. The deliverables
and timing depend upon the customer’s needs. Because the sales are so highly customized, separate sales are too infrequent
to establish vendor specific objective evidence (VSOE). As a result, we use third party evidence for products and the best
estimate of selling prices for other contract features. For services performed, revenue is recognized when the products have been
installed and services have been rendered. Revenues from maintenance support or managed services contracts are deferred and recognized
as earned ratably over the service coverage periods.

For
equipment sales, revenue is generally recognized upon shipment of the product; however, there are certain instances where revenue
is deferred and recognized upon delivery or customer acceptance of the product as we legally retain the risk of loss on these
transactions until such time.

Costs
related to revenues are recognized in the same period in which the specific revenues are recorded. Shipping and handling fees
billed to customers are reported in revenue. Shipping and handling costs incurred by the Company are included in cost of sales.
Estimates used in the recognition of revenues and cost of revenues include, but are not limited to, estimates for product warranties,
price allowances and product returns.

Inventory
Valuation

Inventories
are stated at the lower of cost (first-in, first-out) or net realizable value. Our policy is to evaluate all inventory quantities
for amounts on-hand that are potentially in excess of estimated usage requirements, and to write down any excess quantities to
estimated net realizable value. Inherent in the estimates of net realizable values are management’s estimates related to
customer demand and the development of new technology, which could make our theater and digital media products obsolete, among
other items.

31

Income
Taxes

Income
taxes are accounted for under the asset and liability method. We use an estimate of our annual effective rate at each interim
period based on the facts and circumstances at the time while the actual effective rate is calculated at year-end. Deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date.

In
assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income. The Company considers the scheduled reversal of taxable temporary differences, projected
future taxable income and tax planning strategies in making this assessment. A cumulative loss in a particular tax jurisdiction
in recent years is a significant piece of evidence with respect to the realizability that is difficult to overcome. Based on the
available objective evidence, including recent updates to the taxing jurisdictions generating income, the Company concluded that
the valuation allowance recorded against the Company’s U.S. tax jurisdiction deferred tax assets is appropriate as of December
31, 2017.

Business
Combinations

The
Company uses the acquisition method in accounting for acquired businesses. Under the acquisition method, the financial statements
reflect the operations of an acquired business starting from the completion of the acquisition. The assets acquired and liabilities
assumed are recorded at their respective estimated fair values at the date of the acquisition. Any excess of the purchase price
over the estimated fair values of the identifiable net assets acquired is recorded as goodwill. Significant judgment is often
required in estimating the fair value of assets acquired, particularly intangible assets. As a result, in the case of significant
acquisitions we normally obtain the assistance of third-party valuation specialists in estimating fair values of tangible and
intangible assets. The fair value estimates are based on available historical information and on expectations and assumptions
about the future, considering the perspective of marketplace participants. While management believes those expectations and assumptions
are reasonable, they are inherently uncertain. Unanticipated market or macroeconomic events and circumstances may occur, which
could affect the accuracy or validity of the estimates and assumptions.

Item
7A. Quantitative and Qualitative Disclosures About Market Risk

The
principal market risks affecting us are exposure to interest rates and foreign currency exchange rates. We market our products
throughout the United States and the world. As a result, we could be adversely affected by such factors as changes in foreign
currency rates and weak economic conditions. As a majority of our sales are currently denominated in U.S. dollars, a strengthening
of the dollar can and sometimes has made our products less competitive in foreign markets.

Interest
Rates—Interest rate risks from our interest related accounts such as our postretirement obligations are not deemed significant.
We currently have long-term notes receivable, recorded at fair value, bearing fixed interest rates of 15% and long-term debt with
a fixed interest rate of 4.5%. A change in long-term interest rates for comparable types of instruments would have the effect
of us recording changes in fair value of the notes receivable through our statement of operations. We also have $500,000 borrowed
on a revolving line of credit that bears variable interest at the Prime Rate published by the Wall Street Journal plus 0.25%,
or 4.75% as of December 31, 2017. Changes in the Prime Rate would increase or decrease our interest expense on outstanding line
of credit borrowings.

Foreign
Exchange—Exposures to transactions denominated in currencies other than the entity’s functional currency are primarily
related to our Canadian subsidiaries. Fluctuations in the value of foreign currencies create exposures, which can adversely affect
our results of operations. From time to time, as market conditions indicate, we will enter into foreign currency contracts to
manage the risks associated with forecasted transactions. A portion of our cash our Canadian subsidiary is denominated in foreign
currencies, where fluctuations in exchange rates will impact our cash balances in U.S. dollar terms. A hypothetical 10% change
in the value of the U.S. dollar would impact our reported cash balance by approximately $0.1 million.

Equity
Price Risk—We are exposed to equity price risk related to certain of our investments in equity securities. At December 31,
2017, our carrying value of investments in equity securities aggregated $18.1 million, all of which were accounted for using the
equity method. A change in the equity price of the equity method investments would result in a change in the fair value or economic
value of such securities.

Individual
audited financial statements of entities accounted for by the equity method qualifying as significant subsidiaries (1347 Property
Insurance Holdings, Inc. and Itasca Capital Ltd.) will be filed as exhibits to a Form 10-K amendment within 90 days of the December
31, 2017 year end.

33

Report
of Independent Registered Public Accounting Firm

Shareholders
and Board of Directors

Ballantyne
Strong, Inc.

Omaha,
Nebraska

Opinion
on the Consolidated Financial Statements

We
have audited the accompanying consolidated balance sheets of Ballantyne Strong, Inc. (the “Company”) and subsidiaries
as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive (loss) income, stockholders’
equity, and cash flows for each of the two years in the period ended December 31, 2017, and the related notes and schedule (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2017 and 2016, and the
results of their operations and their cash flows for each of the two years in the period ended December 31, 2017, in conformity
with accounting principles generally accepted in the United States of America.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”) and our report dated March 15, 2018 expressed an unqualified opinion thereon.

Basis
for Opinion

These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud.

Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our
opinion.

/s/
BDO USA, LLP

We
have served as the Company’s auditor since 2016.

Raleigh,
North Carolina

March
15, 2018

34

Report
of Independent Registered Public Accounting Firm

The
Board of Directors and StockholdersBallantyne Strong, Inc.:

We
have audited, before the effects of the adjustments applied relating to the operations that have been reclassified as discontinued
operations described in Note 2, and before the effects of the adjustments applied relating to the reclassification of results
between segments described in Note 17, the accompanying consolidated statements of operations, comprehensive (loss) income, stockholders’
equity, and cash flows of Ballantyne Strong, Inc. and subsidiaries (the Company) for the year ended December 31, 2015. In connection
with our audit of the consolidated financial statements, we also have audited financial statement Schedule II for the related
period, before the effects of the adjustments applied relating to the operations that have been reclassified as discontinued operations
described in Note 2. The 2015 financial statements before the effects of the adjustments applied relating to the operations that
have been reclassified as discontinued operations discussed in Note 2, and before the effects of the adjustments applied relating
to the reclassification of results between segments described in Note 17 are not presented herein. These consolidated financial
statements and financial statement schedule for the relating period are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based
on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements, before the effects of the adjustments applied relating to the operations that
have been reclassified as discontinued operations described in Note 2, and before the effects of the adjustments applied relating
to the reclassification of results between segments described in Note 17, present fairly, in all material respects, the results
of operations and cash flows of Ballantyne Strong, Inc. and subsidiaries for the year ended December 31, 2015, in conformity with
U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule for the related periods,
before the effects of the adjustments applied relating to the operations that have been reclassified as discontinued operations
described in Note 2 when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.

We
were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the effects of the adjustments
applied relating to the operations that have been reclassified as discontinued operations described in Note 2 or to retrospectively
apply the effects of the adjustments applied relating to the reclassification of results between segments described in Note 17
and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and
have been properly applied. Those adjustments were audited by a successor auditor.

/s/
KPMG LLP

Omaha,
Nebraska

March
7, 2016

35

Ballantyne
Strong, Inc. and Subsidiaries Consolidated Balance Sheets

(In
thousands, except par values)

December
31, 2017

December
31, 2016

Assets

Current
assets:

Cash
and cash equivalents

$

4,870

$

7,596

Accounts
receivable (net of allowance for doubtful accounts of $1,877 and $1,097, respectively)

10,766

16,316

Inventories,
net

4,821

6,563

Recoverable
income taxes

495

672

Other
current assets

1,290

1,746

Current
assets held for sale

—

188

Total
current assets

22,242

33,081

Property,
plant and equipment (net of accumulated depreciation of $8,780 and $7,066 respectively)